Texas Workers' Compensation: What Employers Need to Know

Texas Workers' Compensation System

Texas is unique among U.S. states in that it does not require most private employers to carry workers' compensation insurance. Under the Texas Labor Code, Chapter 406, employers may choose whether to subscribe to the workers' compensation system. Those that participate are called subscribers, while those that opt out are known as non-subscribers.

This voluntary system creates important strategic and legal considerations for Texas employers, as the decision to subscribe or not significantly affects liability exposure and employee protections.

Subscriber vs. Non-Subscriber Status

Subscribing employers obtain workers' compensation coverage through the Texas Department of Insurance, Division of Workers' Compensation (DWC). In exchange, they receive protection from most employee lawsuits related to workplace injuries. Injured employees receive medical benefits and income replacement without needing to prove employer fault.

Non-subscribing employers forfeit several common-law defenses if sued by an injured employee, including contributory negligence, assumption of risk, and the fellow-servant doctrine. This means non-subscribers face significantly greater litigation risk when employees are injured on the job.

Notification Requirements

Regardless of subscription status, Texas employers must notify the DWC and their employees of their coverage decision. Subscribers must post notice of coverage in the workplace and file proof of coverage with the DWC. Non-subscribers must file Form DWC-005 with the DWC and provide written notice to employees that the employer does not carry workers' compensation coverage.

These notifications must be provided annually and to each new hire. Failure to provide required notices can result in administrative penalties.

Non-Subscriber Alternative Plans

Many non-subscribing employers establish occupational injury benefit plans, sometimes called Texas Non-Subscriber Plans, to provide benefits to injured employees. These plans are not regulated by the DWC and vary widely in design. They typically include medical expense coverage and wage replacement benefits.

However, these alternative plans may include provisions that would not be permissible under the workers' compensation system, such as mandatory arbitration clauses, shorter filing deadlines, and limitations on covered injuries. Employers must ensure their plans comply with ERISA requirements if they constitute employee welfare benefit plans.

Making the Right Decision

Employers should evaluate their industry risk profile, claims history, workforce size, and financial capacity when deciding whether to subscribe. High-risk industries such as construction and manufacturing often find that subscription provides valuable litigation protection. Smaller employers in lower-risk industries may determine that non-subscription with a well-designed benefit plan is more cost-effective.

Consulting with a qualified insurance broker and employment attorney familiar with Texas law is strongly recommended before making or changing a subscription decision. The consequences of an inadequate injury response plan can be financially devastating.